Understand Blockchain

Blockchain is a technology which, among other things, allows secure transactions directly between individuals. This means no need for middlemen such as banks. For instance, Blockchain is the technology behind the digital currency bitcoin and it has the potential to change the way we do business in the future.

A global ledger

Blockchain can be described as a joint global digital ledger, which is always up-to-date with all transactions.

In a ledger you write down all your company’s expenses and earnings. In a similar way the Blockchain technology registers all the transactions that are connected to the database. This could be in the form of bitcoin or one of the many other digital currencies. If you use bitcoin to purchase an e-book from me the transaction will be registered globally in the bitcoin Blockchain on millions of computers. This means, that everyone else can verify that the money have traveled from you to me and, in fact, also that I have sent you the book. Experts describe this system as almost impenetrable because all information is accessible to everyone all the time.

The problem with the middlemen

They can be hacked. And they will be.

They exclude many from the global economy – for instance, people who don't have enough money for a bank account.

The internet mediates information – Blockchain mediates value

When you send a file to your colleague you're not sending her the original but rather a copy, which works well with information. But if we are dealing with, for instance, money instead then it's an entirely different matter. Here it's better not to send a copy, as Tapscott playfully notes in his TED video. This is why in today’s world we need middlemen – banks – in order to mediate transactions. The banks serve as an element of security, which provides the comfort that the money I send you actually end up on your account even though I don’t hand them to you physically.

Blockchain ensures that.

How does Blockchain work?

Blockchain can be visualized as a line of time stamped and linked blocks of information. Each of these blocks contain information about the transactions that have taken place within the latest period, for instance 10 minutes. Security is ensured through the most advanced cryptography and not least by the fact that everyone has access to all these blocks of information. So if anyone attempts to cheat, everyone else in the system will be able to see that someone is cheating and the transaction will therefore be rejected.

Each of these blocks are linked to the previous one. So, if I want to cheat the system I have to hack not only one block but also all of the previous ones. And not just on one computer but on millions of computers that all use the best cryptography technology.

The possibilities of Blockchain

The technology is still in its early stages and it's difficult to predict what it'll mean.

Yet here is a couple of guesses:

Blockchain will be adopted by central banks and cryptographically secured currencies will spread.

Blockchain can potentially reduce the risk of e-trading by offering verified identity through a visible ledger.

A refrigerator equipped with sensors and wired to the internet can use Blockchain to automate purchases by ordering and paying for items.

Blockchain replaces central banks.

Small businesses use Blockchain to create a reliable mutual trading platform.

Elections are currently very expensive and difficult. Thanks to the Blockchain technology elections may soon take place instantly.

You can see more predictions about future implications of Blockchaintechnology here.